Summary and Analysis

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International Trade

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Why should countries trade?

(A)
To help them thrive

(B)
To increase output

(C)
To decrease output

(D)
To keep them busy

Which of the following is a situation in which trade is
advantageous?

(A)
Two countries produce the same goods for the same costs

(B)
Two countries produce different goods for different costs

(C)
Two countries are isolated

(D)
Two countries have the same markets

When one producer can create a given amount of output with
fewer inputs, what exists?

(A)
Comparative advantage

(B)
Comparative disadvantage

(C)
Absolute advantage

(D)
Absolute disadvantage

When one producer has a lower opportunity cost of
production than another producer for a given item, what
exists?

(A)
Absolute disadvantage

(B)
Absolute advantage

(C)
Comparative disadvantage

(D)
Comparative advantage

Farmer John has a pistachio farm. It takes him 5 hours worth of work
to harvest 1 pound of nuts. Farmer Rick also has a pistachio farm. It
takes him 10 hours worth of work to harvest 1 pound of nuts. Finally,
Farmer Erica owns a third pistachio farm. She can harvest 1 pound of
nuts in 2 hours. Who has the absolute advantage in this example?

(A)
Farmer Erica

(B)
Farmer Rick

(C)
Farmer John

(D)
Unclear

There are three producers. Producer A spends $10 to make a
widget. Producer B spends $50 to make a widget. Producer
C spends $4. Who has the absolute
advantage?

(A)
Producer B

(B)
Producer C

(C)
Producer A

(D)
Unclear

Mechanic A can change a tire in 1 hour and change a
sparkplug in 2 hours. Mechanic B can change a tire in 0.5
hours and change a sparkplug in 0.25 hours. Who has the
comparative advantage in changing sparkplugs?

(A)
Need more information

(B)
Both mechanics

(C)
Mechanic B

(D)
Mechanic A

Rancher Tom can raise 10 goats and 20 pigs in a year.
Rancher Joe can raise 20 goats and 100 pigs in a
year. Who has the
comparative advantage for raising pigs?

(A)
Need more information

(B)
Both ranchers

(C)
Rancher Tom

(D)
Rancher Joe

What term applies when one option is chosen from among
several possibilities?

(A)
Opportunity cost

(B)
Absolute advantage

(C)
Comparative advantage

(D)
Lost possibilities

If there are two producers and two products, which of the
following cannot happen?

(A)
A producer has an absolute advantage on one product

(B)
A producer has the comparative advantage on both products

(C)
A producer has the comparative advantage on one product

(D)
A producer has an absolute advantage on both products

When a comparative advantage exists, what should the
producer with the comparative advantage do?

(A)
Produce the item for which he does not have the comparative
advantage

(B)
Produce both items

(C)
Produce the item for which he does have the comparative
advantage

(D)
Produce neither item

When an absolute advantage exists, what should the producer
with the absolute advantage do?

(A)
Produce the item for which he does not have the absolute
advantage

(B)
Produce both items

(C)
Produce the item for which he does have the absolute advantage

(D)
Produce neither item

Is it possible for a producer to have both an absolute
advantage and a comparative advantage?

(A)
Yes

(B)
No

(C)
Only if the market is small

(D)
Only if there are two producers

What equation describes output?

(A)
Y = C + I + G + X

(B)
Y = C + I + G + NX

(C)
Y = C + I + G + I

(D)
Y = C + I + G

What else does the equation Y = C + I + G + NX describe?

(A)
Interest rate

(B)
Exchange rate

(C)
Income

(D)
Growth rate

In the equation Y = C + I + G + NX, what does Y stand for?

(A)
Real output

(B)
Real wages

(C)
Nominal wages

(D)
Nominal output

What is the equation that describes net exports?

(A)
Net exports = exports - imports

(B)
Net exports = output - exports

(C)
Net exports = exports - output

(D)
Net exports = imports - exports

When a country exports and imports the same amount of
goods, what is its net exports?

(A)
Need more information

(B)
Zero

(C)
Exports plus imports

(D)
Output plus exports

When a country exports more than it imports, what is the
value of net exports?

(A)
Negative

(B)
Zero

(C)
Positive

(D)
Need more information

When a country imports more than it exports, what is the
value of the net exports?

(A)
Need more information

(B)
Zero

(C)
Positive

(D)
Negative

When net exports are negative, what accounts for the
difference?

(A)
Net foreign investment

(B)
Imports

(C)
Exports

(D)
Net exports

What is the equation that relates net exports to net
foreign investment?

(A)
NX = NFI + C

(B)
NX = NFI

(C)
NX = NFI - C

(D)
NX = 1 - NFI

If a country always imports more than it exports, what will
its net foreign investment look like?

(A)
Low

(B)
Medium

(C)
High

(D)
Need more information

If a country always exports more than it imports, what will
the net foreign investment look like?

(A)
Need more information

(B)
High

(C)
Medium

(D)
Low

Which of the following pairs go together?

(A)
Negative NX and high NFI

(B)
Negative NX and low NFI

(C)
Positive NX and high NFI

(D)
None of the above

Which of the following pairs go together?

(A)
High imports and high net exports

(B)
Need more information

(C)
Low imports and high net exports

(D)
Low imports and low net exports

What do you call the number that represents the nominal
value of currency in two countries?

(A)
Interest rate

(B)
Output

(C)
Exchange rate

(D)
Price

What do you call the number that compares the real cost of
goods between two countries?

(A)
Nominal exchange rate

(B)
Real interest rate

(C)
Nominal interest rate

(D)
Real exchange rate

Which is easier to calculate, the nominal exchange rate or
the real exchange rate?

(A)
Nominal exchange rate

(B)
Real exchange rate

(C)
Need more information

(D)
None of the above

Which of the following is not necessary to calculate the
real exchange rate?